- The house price decline began in Q2;
- Further declines are virtually certain given more rate hikes on the way;
- The extent of the fall in house prices will differ between cities;
- Sydney and Hobart are most vulnerable;
- House prices appear best value in Perth and Darwin..
The slide has started
‘We’re going to ri-ri-ri-ri-rise til we fall’ was the opening line from ‘Rise’, a song by Jonas Blue a UK DJ and music producer. The song peaked at number 3 in the top UK singles charts of 2018 (was number one in the Czech Republic) and apparently did very well on the US Dance scene (not that I would know). Whatever its musical merits the reason why the opening line grabbed my attention was that it is a pretty accurate description to what is happening to house prices. In March house prices rose by well over 1%. By June house prices declined on average across Australia.
As is so often the case, averages can deceive. Since the end of last year house prices have declined in Melbourne and were essentially flat in Sydney. Growth remained strong in Brisbane and Adelaide. The other capital cities were in between.
The impact of the first cash rate rise in May appears clear. But price growth had already begun to moderate in Sydney and Melbourne reflecting affordability concerns and the big rise in the supply of homes available for sale. Prices are starting to decline in the cities (Hobart and Canberra) that do not appear cheap (relative to their historical average price compared with Sydney). The cities that are still experiencing growth (Brisbane, Adelaide, Perth and Darwin) are the ones that are cheap (again relative to Sydney).
Extremely low interest rates, strong fiscal support and rapidly rebounding economic growth meant that house prices rose strongly across many countries over the course of the pandemic. The rise of Australian house prices has been higher than most peer countries.
To read my full update, click here.
We live in interesting times.
Peter Munckton - Chief Economist